Bounce in Chinese oil-related stocks after Opec’s surprise cut in output

CNOOC surges 5.1pc, PetroChina and Sinopec rise 3 to 4pc, after oil cartel lowers production by 750,000 barrels per day

PUBLISHED : Thursday, 29 September, 2016, 12:36pm
UPDATED : Thursday, 29 September, 2016, 10:13pm

Shares in Chinese oil producers and oilfield service providers surged on Thursday, after Opec reached a surprise preliminary agreement to cut output by 2.2 per cent, the first reduction in eight years.

Despite scant details of the individual national output targets, and doubts on the effectiveness by some member countries of making the cuts, some analysts said the agreement should remove the bulk of current global oversupply.

The finer details on individual production levels are expected to be released at its next formal meeting in November, but the Organisation of the Petroleum Exporting Countries said it would reduce overall output by up to 750,000 barrels per day to 32.5 million barrels. International oil prices gained 5 to 6 per cent after the cutback plan was announced.

“If implemented and enforced, the Opec deal will force the world to drain down inventories and balance the market,” Nomura head of Asia oil and gas research Gordon Kwan said in a note on Thursday.

But other analysts have doubts on the agreement’s execution.

Richard Jerram, Bank of Singapore’s chief economist, said in a note he was “sceptical that an agreement to control output can hold” as Opec had not agreed on the individual details of production quotas.

“With Iran keen to ramp up output [after] the lifting of sanctions, the [output target] is not very credible, especially considering the political rivalry among some member countries,” Jerram said.

Shares in CNOOC, China’s dominant offshore oil and gas producer with no downstream refining and distribution operations, surged 5.1 per cent on Thursday.

Its profitability is the most sensitive to global oil price movements, of the country’s big three state-controlled oil giants. PetroChina and Sinopec, both with downstream operations, rose 3 to 4 per cent.

Kwan had earlier given a 40 per cent chance of Opec members agreeing to slash output, and said many traders had expecting the meeting in Algeria to be a non-event.

If implemented and enforced, the Opec deal will force the world to drain down inventories and balance the market
Gordon Kwan, head of Asia oil and gas research, Nomura

HSBC analysts estimated in a report earlier this month that the global surplus in crude output – or inventory addition – amounts to 500,000 barrels per day, compared to 1.7 million barrels last year and 400,000 barrels in 2014.

They forecast the surplus to turn into a deficit from next year onwards, with inventory drawdown rising from 100,000 barrels a day next year to 1.1 million barrels by 2020.

HSBC said this could mean the annual average Brent benchmarket crude price might rebound to US$60 a barrel next year and US$75 in 2018, after falling to US$46.80 this year from US$99.50 in 2014.

Kwan now expects Brent to average US$60 a barrel next year and US$70 in 2018.

Brent oil for November delivery traded at around US$48.50 a barrel early Thursday in London.

The oil price rally also benefited firms that supply drilling and support services and equipment to the oil producing majors.

Beijing-based Anton Oilfield Services shares jumped 7.3 per cent to 74 HK cents, while Sichuan province-based drilling rigs maker Honghua Group rallied 8 per cent to 47 HK cents.

CNOOC’s sister firm China Oilfield Services surged 11.3 per cent to HK$6.88, and Sinopec’s sister firm Sinopec Oilfield Service gained 4.8 per cent to HK$1.52.